Garrett Harper's Blog

National Research Shows a Trend Toward Smaller Businesses

by
Garrett Harper
| Apr 18, 2012

Businesses are getting smaller. Well, more precisely, the average size of businesses in the U.S. economy appears to be getting smaller. In new research from the U.S. Bureau of Labor Statistics, data indicate that the average firm size has declined from 17.3 workers in 2000 to 15.7 in 2011. The phenomenon of business’ average size shrinking has occurred in every year since 2000, irrespective of the upward or downward movement of the economy overall. This is in contrast to the 1990s -- and likely the 1970s and 1980s as well -- when average firm size grew consistently. Further declines in the past decade occurred across most industries. The key factor influencing this, according to study authors Eleanor Choi and James Spletzer, is that startup firms are beginning smaller and staying smaller, thus bringing the overall average down. They further speculate that new firms likely are more technologically oriented and may rely less on labor for their expansion.

So how do these statistics bear out in Nashville? In 2000, the average business in Davidson County employed 21.4 workers. The average fell to 20.6 by 2009 (the most recent year of data available for local areas). While this trend locally is less pronounced than in the national findings, the points outlined in the study seem relevant. Certainly, Middle Tennessee has uniquely strong performance in entrepreneurial activity. With 23 percent of the local workforce self-employed, a rate higher than the national rate of 18 percent, our region has a deserved reputation for its entrepreneurial success. Nashville's proclivity to experience growth in new businesses that incorporate technology and innovation can easily serve as an example for the findings in the new national research.